Global house prices continued to rise rapidly in 2006, but at a slower
pace than in 2005. Northern Europe leads the house price boom.

Leading the charge was Estonia with an impressive 54% house price increase
in 2006. This followed average dwelling price rises of 57% in 2005,
and 25% in 2004 (see table).

Estonia was followed by Denmark which experienced 23% house price rises
in 2006, then by Norway (14%) and Ireland (13%). Other countries in
northern Europe also had impressive house price increases, including
Sweden, UK, and Finland.

Early indicators suggest that Latvias strong house price growth
will continue in 2006, following 27% house price rises in 2005. This
will be verified as soon as official statistics come in.

Outside Europe, South Africa, 2004s star performer, continues
to experience strong house price growth, with 2006 house price rises
of 12.7%. However, this is a far cry from the 33% increases recorded
in 2004, and the 17% rises of 2005.

Malaysia and Taiwan are still muddling through, and saw only marginal
price increases of 1.4% and 1.1%, respectively.

The previous strong house price growth in Thailand during 2004 and
2005 came to an end, as the political crisis spilled over to the economy,
and 2006 saw house price falls of almost 1%.

Japan has not seen the end of more than a decade of property price
falls. Commercial property values are rising in Tokyo and some major
cities, but in the rest of the country property prices are still static.

The global property boom is slowing

Many more countries experienced nominal house price increases in 2006,
than price falls. Yet the pace of housing price increases in 2006 was
generally down on 2005.

Several countries experienced quite significant slowdowns in their
housing markets, without seeing actual price falls. Countries in this
category, where the price rise rate dropped by more than five percentage
points, include Poland (6.6 percentage point reduction on previous rate
of house price rise), US (5.6% reduction on previous rate of house price
increase) and New Zealand (5.02% reduction on 2005s price-rise
rate).

However, US house prices showed no actual decline in 2006, either during
the year, or from one quarter to the next, according to the OFHEO house
price index, despite some press reports to the contrary.

It is tempting to attribute the slowdown in many countries to interest
rate rises, especially in Europe and the US.

However, other forces came into play in some countries. Israel (typically
not included in most global house price reports) experienced
price declines in 2006 (-4%), after a recovery in 2005. The price fall
can be attributed to the war with Hezbollah in Lebanon, and other political
troubles.

The dramatic upsurge of Hong Kong property prices in 2003 and 2004,
and sudden cooling down in 2005 and 2006, also deserve a better explanation
than the usual speculative bubble theory.